A province needs to raise money, and the premier has a choice of imposing an excise tax of the same amount on one of two previously untaxed goods: restaurant meals or gasoline. Both the demand for and the supply of restaurant meals are more elastic than the demand for and the supply of gasoline. If the premier wants to minimize the deadweight loss caused by the tax, which good should be taxed? For each good, draw a diagram that illustrates the deadweight loss from taxation

A province needs to raise money, and the premier has a choice of imposing an excise tax of the same amount on one of two previously untaxed goods: restaurant meals or gasoline. Both the demand for and the supply of restaurant meals are more elastic than the demand for and the supply of gasoline. If the premier wants to minimize the deadweight loss caused by the tax, which good should be taxed? For each good, draw a diagram that illustrates the deadweight loss from taxation

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that a city government introduces a $0.50 excise (commodity) tax on consumers of bottles of soda to improve the health of its citizens. Manipulate the accompanying graph to demonstrate the impact of the tax on the market for soda Market for Bottles of Soda 5.0 4.5 4.0 What would be the new equilibrium quantity if instead of taxing consumers, the city taxed producers? 3.5 3.0 2.5 thousand bottle:s 2.0 0.5 0.0 0 2 34 Quantity (thousands of bottles) 5 8 9 10
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. PRICE (Dollars per pack) 10 9 8 7 2 1 0 Supply Demand 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Packs) Suppose the government imposes a $2-per-pack tax on suppliers. At this tax amount, the equilibrium quantity of cigarettes is Graph Input Tool Market for Cigarettes Quantity (Packs) Demand Price (Dollars per pack) Tax (Dollars per pack) 40 6.00 2.00 Supply Price (Dollars per pack) packs, and the government collects $ ? 4.00 in tax revenue.
When assessing the welfare effects of taxes, we can conclude that They are always welfare increasing, because they allow the government to provide essential goods They are usually welfare decreasing in the market in which they are raised, but for society as a whole it depends on how they are used They are always welfare decreasing They are welfare neutral, because whatever is lost by producers and consumers goes instead to the government and therefore is just a reallocation of money
Illustrate, with the use of an appropriate figure, what the deadweight loss from the imposition of a sugary tax would look like.
Suppose that the U.S. government decides to charge beer producers a tax. Before the tax, 20 million cases of beer were sold every month at a price of $4 per case. After the tax, 13 million cases of beer are sold every month; consumers pay $7 per case, and producers receive $2 per case (after paying the tax). The amount of the tax on a case of beer is per case. Of this amount, the burden that falls on consumers is per case, and the burden that falls on producers is per case. True or False: The effect of the tax on the quantity sold would have been the same as if the tax had been levied on consumers. True False
Suppose that the local government of Columbus decides to institute a tax on soda producers. Before the tax, 30 million liters of soda were sold every month at a price of $9 per liter. After the tax, 23 million liters of soda are sold every month; consumers pay $14 per liter, and producers receive $6 per liter (after paying the tax). The amount of the tax on a liter of soda is $ that falls on producers is $ per liter. True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on consumers. True per liter. Of this amount, the burden that falls on consumers is $ False per liter, and the burden
Taxes and Subsidies: End of Chapter Problem Let's see if we can formulate any real laws about the economics of taxation. Which of the following must be true? More than one may be true. If there is a tax: Must occur a. The equilibrium quantity must fall, and the price that buyers pay must rise. b. The equilibrium quantity must rise, and the price that sellers pay must rise. Will not occur c. The equilibrium quantity must fall, and the price that sellers receive must fall. Answer Bank d. The equilibrium quantity must rise, and the price that buyers receive must fall.
The following graph shows the market for the long-distance bus rides. In the absence of taxes, the equilibrium price of a ride is $5 and the equilibrium quantity is 10 million rides. Suppose that regulator levies an excise tax on bus service providers. The amount of excise tax equals $2 per ride. How much will bus service providers get per ticket after the tax is imposed? $5.50 $4 $4.50 $5
The article does not mention the costs involved with the imposition of a sugary tax. Illustrate, with the use of an appropriate figure, what the deadweight loss from the imposition of a sugary tax would look like. Particularly, who would likely suffer a greater share of the deadweight loss – the consumer or producer? Why?
Consider the market for mountain bikes .The following graph shows the demand and supply for mountain bikes before the government imposes any taxes Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax , and consumer surplus , producer surplus , tax revenue and dead weight loss after tax . Note : you can determine the areas of different portions of the graphs by selecting the relevant area Consumer surplus before tax and after tax : Producer surplus before and after tax : Tax revenue after tax : Deadweight loss after tax :
1. What is the equilibrium price and quantity? 2. Suppose the government imposes a tax of $1.00 on each water bottle. Complete the column showing quantity supplied after the tax. (Hint: at a price of $8.00 the quantity supplied was 36000. With the tax, this quantity supplied will be supplied only at a price of $9.00, so the Quantity supplied with a tax at 9.00 is 36000) You continue, so at $8.50, the producer only gets 7.50. so is only willing to offer 32000 units. Qd Price 000s) $9.00 20 8.50 8.00 7.50 7.00 6.50 6.00 24 28 32 36 40 44 Qs (000s) 44 40 38 32 28 24 20 Quantity supplied after tax Qs(t) (000s) 36 32 Price 28 24 3. On your graph, plot the new supply curve after the imposition of the tax (in a different colour, to differentiate the supply curve). 4. What will be the new equilibrium price and quantity? 5. How much of the tax is passed onto the consumers in the form of price increase, and how much is paid by the producers? Indicate the producer and consumer burden on your…
In the market for candy, researchers have estimated the following demand and supply curves. Demand: P= 8 - Q/100 Supply: P= (3Q)/700 If the government imposes an excise tax of $0.50 per unit. What is tax revenue out of this tax? (Remember that the tax does not change the demand and supply curves).